Democrats like a Romney plan on income tax

New York Times :
November 12, 2012

WASHINGTON — With both parties positioning for difficult negotiations to avert a fiscal crisis as Congress returns for its lame-duck session, Democrats are latching on to an idea floated by Mitt Romney to raise taxes on the rich through a hard cap on income tax deductions.

The proposal by Romney, the Republican presidential nominee, was envisioned to help pay for an across-the-board income tax cut, a move ridiculed by President Barack Obama as window dressing to a “sketchy deal.”

But many Democrats now see it as an important element of a potential deficit reduction agreement — and one they can claim to be bipartisan.

The cap, never fully detailed by Romney, is similar to a long-standing proposal by Obama to limit income tax deductions to 28 percent, even for affluent households that pay a 35 percent rate.

But a firm cap of around $35,000 would hit the affluent even harder than Obama's proposal, which has previously gotten nowhere in Congress.

“Let's just say there's a renewed interest,” said Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee. “Part of it is people reflecting on Obama's proposal, but when Romney said what he said, it just added fuel.”

The attention on the plan is evidence that ideas on deficit reduction are beginning to take firmer form as the January deadline for dealing with expiring tax cuts and automatic spending reductions draws close.

The lame-duck session that begins today could be one of the most pivotal in years, and the political atmosphere is considerably different than when lawmakers left in October for the fall campaigns.

“The worst time to work together on a bipartisan basis is right before an election,” said Rep. Jeb Hensarling of Texas, chairman of the House Republican Conference.

“The best time to work on a bipartisan basis is right after an election.”

Returning lawmakers will find a long to-do list greeting them today and seven short weeks to do it. In the House, members may once again try to grapple with the farm bill, which expired during the recess. Dairy farmers in particular are clamoring for a resolution, and a year of record drought gave urgency to a bill.

Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, said the Romney proposal to cap deductions would only work in concert with allowing the top two income tax rates to revert to the level of Bill Clinton's presidency, 36 percent and 39.6 percent, up from the current 33 percent and 35 percent.

To come close to the level of deficit reduction needed to get the nation's fiscal house in order, the presidential deficit reduction commission assumed those top rates would jump, Van Hollen said.

But beyond those rate increases, more revenues will have to be raised.

“This is a promising idea for tax reform,” Van Hollen said, “if you start at the higher Clinton-era rates for high-income earners.”

The Democratic centrist group Third Way has made it the centerpiece of a package of tax changes that it says could raise nearly $1.3 trillion over 10 years without raising rates.

The Third Way proposal would limit tax deductions to $35,000 but would exclude charitable giving. Universities, foundations and other philanthropies have been the biggest impediment to passing Obama's more modest 28 percent limit, which did not exclude the charitable tax deduction.